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Typical rents across London are predicted to fall by 1% and 2% in 2017, according to the latest report from Hometrack.

In addition, rents in the rest of England and Wales are forecasted to increase by 2%-3%. The best of this growth is expected to be in the Midlands and in the East of England, where rents are currently increasing at near 5% per year.

Residential Growth

The report points out that residential growth during the last decade has ranged from between 45% to -7% across UK regions. This variance can largely be attributed to local and economic factors.

Rental affordability, somewhat unsurprisingly, is worst in London. On the other end, it is the best for a decade in regions outside of the South of England.

While demand for rental property has grown, the impact on rents varies.

Assessing asking rents from 2004 onwards across England and Wales, the analysis reveals that rents slipped between 6% and 12% during the financial crisis. During this period, accidental landlords increased supply while falling employment led to a fall in demand.

Capital Gains/Pains

Since 2010, rental growth at a national level outside of London, has mainly tracked the growth in typical earnings with the growth in rents averaging at 2.7% per annum.

London has seen higher levels of rental growth since the year 2010- averaging at 4.5% per annum. There have been two periods of weaker inflation and now in 2017. Large employment growth in London during this seven year period has led to an increase in rental demand.

What’s more, high house prices and stricter mortgage regulations have made the playing field harder for first-time buyers to make the step from renting to buying.

Rents in London set to fall by 3% by the end of 2017

Earnings

Taking the results of the last decade in context, while rents have risen by 45% in London and over 20% in the South, rents elsewhere have been largely flat, with smaller growth in employment and earnings failing to offset the fall in rents seen in 2008/09.

At national level, rental affordability has been largely stable in the long run. Rents have accounted for between 27% and 32% of gross annual earnings during the last 12 years.

Over the period, there have been clear differences in affordability across the UK , with Wales, the Midlands and Northern regions seeing the most attractive affordability in comparison to stretched affordability in London.

Looking to the future, the report suggests that there is likely to be a tightening of rental supply during the next year, in order to support rent levels, particularly in London.

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